OPEB update. Puget Sound Finance Officers Association November 8, O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r

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1 OPEB update Puget Sound Finance Officers Association November 8, 2017 O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r

2 Today s presentation Summary of the new OPEB standards Implementation Considerations Plan types Measurement date/discount rate Alternative valuation method Blended premium rate Census data F/S, notes and RSI Implementation resources O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 2

3 OPEB OPEB = Other Post Employment Benefits Postemployment healthcare benefits (medical, dental, vision, hearing, etc.) whether provided through a pension plan or separately Other (death benefits, disability, life and LTC insurance, etc.) when provided separately from a pension plan O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 3

4 New OPEB standards issued June 2015 Financial Reporting for Postemployment Benefit Plans Other than Pension Plans Accounting and Financial Reporting for Postemployment Benefits Other than Pensions FYE and after FYE and after Replaces GASB 43 Replaces GASB 45 Applicable if there is a qualifying trust Applicable whether or not there is a qualifying trust O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 4

5 Qualifying Trust What is a qualifying trust (or equivalent arrangement)? Contributions are irrevocable Plan assets are dedicated to providing benefits to plan members Plan assets are legally protected from creditors O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 5

6 What if I don t have a qualifying trust? Can t report a trust fund assets are assets of the employer If you hold any OPEB assets in a fiduciary capacity use an agency fund O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 6

7 OPEB: new standards The new OPEB standards mirror the new pension standards: Liability (or asset) on the statement of net position Deferred outflows/inflows Discount rate The alternative valuation method is still allowed for plans with less than 100 employees (active + inactive). The implicit rate subsidy still applies. O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 7

8 Types of OPEB Plans Single employer Defined Contribution Defined Benefit Trust Agent multipleemployer Cost-sharing multipleemployer No trust Single employer O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 8

9 Insured Benefits What are insured benefits? An arrangement whereby premiums or other payments are made to an insurance company while employees are in active service, in return for which the insurance company unconditionally undertakes an obligation to pay the OPEB of those employees No OPEB liability for the employer O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 9

10 Measuring the OPEB Liability (How do I get my numbers?) O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 10

11 Measurement of the Liability OPEB liability = Actuarial present value of projected benefit payments attributed to past employee service Determined through an actuarial valuation conducted in accordance with actuarial standards of practice performed at least biennially As of the measurement date or rolled forward from a valuation date no more than 30 months and 1 day earlier than the employer s reporting date O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 11

12 Measurement Date Valuation date The date of the actuarial valuation of the plan. It can be rolled forward to the measurement date. Measurement date The date the OPEB liability and deferred outflows/inflows are measured. It is the reporting date of the plan. Reporting date Employer s year end. No need to roll forward from the measurement date. O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 12

13 Measurement Date Selection of the measurement date and valuation date should be consistent from period to period. Valuation must be conducted in accordance with GASB 75. O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 13

14 Discount Rate A single rate that reflects: Expected rate of return on OPEB plan investments only to the extent that the plan s fiduciary net position is sufficient to make projected benefit payments After that yield/index rate for 20-year, tax-exempt GO bonds with AA/Aa rating or higher If you are pay-as-you-go/no qualifying trust, this is your discount rate O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 14

15 Alternative Valuation Method Specified alternative valuation method (see paragraphs 225 & 226 of GASB 75) Can be used to measure total OPEB liability if you have fewer than 100 employees (active and inactive) in the plan as of the beginning of the year O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 15

16 X = <100 Single employee = 1 Employee + spouse = 1 Employee + spouse + 17 kids = 1 Retiree = 1 Retiree + survivor = 1 Survivor = 1 O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 16

17 Implicit Rate Subsidy a.k.a. Blended Premium Rate Caused by inclusion of retirees in the same cost pool as active employees retirees have the same premium rates as active employees. The rates for active employees implicitly subsidize the rates for retirees this implicit subsidy is OPEB. The implicit subsidy must be included in OPEB liability even if retirees pay 100% of their premiums. If retirees are rated separately from active employees and pay 100%, then there is no subsidy. O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 17

18 O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 18

19 Census Data Testing Census data is the member information used in the actuarial valuation that determines the OPEB liability. Examples birthdate, gender, plan options, etc. Employers should have adequate internal controls to ensure that census data is accurate and complete. Auditors will test. O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 19

20 Financial Statements, Notes and RSI Different requirements for single vs. multi-employer and trusted vs. nontrusted plans O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 20

21 Financial Statements O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 21

22 General Note Disclosures O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 22

23 Note Disclosures (cont.) O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 23

24 Required Supplementary Information (RSI) O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 24

25 Implementation Checklist > Determine types of OPEB you offer > Identify type of OPEB plan(s) > Determine if there is a qualifying trust > Get a valuation Select your measurement date Select frequency and timing of actuarial valuations Select qualified actuary or use alternative method Select actuarial assumptions discount rate Census data > Allocate to funds and activities > Notes & RSI O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 25

26 Resources online Governmental Accounting Standards Board (GASB) Download any GASB statement Draft GASB 75 implementation guide Technical inquiries SAO BARS Manual OPEB page O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 26

27 O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 27

28 O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 28

29 Contact the Local Government Support team Debra Burleson, CPA, Assistant Audit Manager O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 29

30 Questions? O f f i c e o f t h e W a s h i n g t o n S t a t e A u d i t o r 30